Fed extends emergency loan programs
WASHINGTON — The Federal Reserve will extend seven of its emergency lending programs through the end of the year, an acknowledgement that the programs may be necessary for longer than was first thought as the nation struggles to control the coronavirus.
The Fed announced the extension of the programs, past their original expiration dates of Sept. 30, at a time when a spike in confirmed virus cases has shown signs of slowing the economy.
The “extension will facilitate planning … and provide certainty that the facilities will continue to be available to help the economy recover from the covid-19 pandemic,” the Fed said Tuesday.
The extension applies to several programs that lend to Wall Street banks and other financial institutions to ensure the flow of credit to businesses and households as well as to the Fed’s corporate bond purchase programs. The central bank has also extended its Main Street Lending Program, which is intended to support mid-sized companies but has generated only a small amount of borrowing so far.
Two of the Fed’s emergency lending programs — one that buys state and local bonds and another that purchases shortterm corporate debt —weren’t included in the announcement. The Fed’s Municipal Liquidity Facility is already scheduled to last through the end of the year, and the Commercial Paper Funding Facility will expire in March.
Federal Reserve officials are grappling this week with the timing and scope of their next policy moves.
No major changes are likely when the Fed releases a statement today after its two-day policy meeting ends and just before Chairman Jerome Powell holds a news conference. But the central bank is working toward providing more specific guidance on the conditions it would need to see before considering raising its benchmark shortterm interest rate, which is now pegged near zero.
Economists call such an approach “forward guidance,” and the Fed used it extensively after the recession a decade ago. The Fed probably won’t provide such guidance until its next meeting in September, economists say. But given signs that the economy is stalling in the face of the pandemic and that several aid programs have expired as Congress debates another rescue package, there’s a chance that Fed officials could update their guidance as early as today.
After its previous meeting last month, the Fed had signaled that it expected to keep its key short-term rate near zero through 2022. Since then, the pandemic’s threat to the economy has appeared to worsen. According to the minutes of their June meeting, “various” Fed officials felt it would “be important in the coming months … to provide greater clarity” about the future path of rates.
Some Fed watchers expect no rate increase until 2024 at the earliest given their bleak outlook for the economy and expectations of continued ultra-low inflation. But more specificity from the Fed could provide further assurance to businesses and households of a low-rate environment for years to come.